Largo Foods doubles operating profit as restructuring bears fruit

CRISP MAKER Largo Foods more than doubled its operating profit in 2009 in spite of a 6.5 per cent decline in sales as the benefits of a major restructuring of the business in recent years began to bear fruit.

The maker of the market leading Tayto, King and Hunky Dory crisps posted an operating profit of €9.9 million last year compared with a surplus of €3.9 million in 2008.

Sales declined to €88.2 million in 2009 from €94.4 million a year earlier, as the company largely withdrew from producing own label crisps for supermarkets in the UK. “We stopped doing most of the own label sales in the UK as it was uncompetitive,” chief executive Ray Coyle said.

Largo achieved a €10 million reduction in its cost of sales last year, following a restructuring of the business that reduced its headcount from about 700 to 560. This followed a €7 million investment in automation at its plants in Ashbourne, Co Meath and in Donegal.

“We continue to work on our overheads,” Mr Coyle said. “We’re making further investment in machinery and focusing on products with extra value.”

Its interest costs, which are largely associated to the acquisition of Tayto in recent years, were reduced to €6.9 million from €8.1 million in 2008, as the company continues to reduce its debts.

This resulted in the company recording a pre-tax profit of €2.7 million in 2009 compared with a loss of €3.8 million in the previous year.

This performance allowed the company to reduce its accumulated losses to €13.8 million last year from €17 million in 2008.

Mr Coyle said Largo’s sales and profits in 2010 would be of a “similar level” to last year. “Next year will be better,” he said, adding that he expects Largo to add €5.8 million in new sales, largely from launching new products to its range.

Largo is spending €2.4 million on a new production line that will be fitted in December to make rice chips, a snack food popular in the United States. “Nobody has done this in Europe yet,” he said.

Mr Coyle expects the rice chips – which will be promoted as a healthier snack food choice – to achieve sales of €15 million in a full year. “We’ll be selling in the UK and continental Europe.”

Largo’s debts have been reduced to about €70 million from a peak of €104 million, Mr Coyle said, and the company will continue to reduce its borrowings. “We need to generate Ebitda (Earnings Before Interest, Taxes, Depreciation and Amortisation) of €14 million a year just to stand still,” he said.

Improvements in productivity levels at its Irish plants had enabled the company to reinstate a 5 per cent pay cut from 2009 this year, he explained. But he said the company would seek further efficiency improvements from its workers this year as it seeks to remain competitive.

Largo has operations in England, Moldova, Libya and China.